Quote of the day

John Stanton wrote:

The USA and European Union (EU) continue on their downward trajectory in the 14th year of 21st Century. The perpetual state of war against terror, drugs, immigrants, the press and whistle-blowers moves on uninhibited. Another war, this time named Austerity, is being waged by USA and EU leaders against the middle and lower classes. Youth are particularly hard hit with the average unemployment rate in the EU at 23 percent. In the USA the figure is 17 percent according to the Bureau of Labor Statistics. But never mind that.

Cutting benefits, or, rather, throwing people away, will reduce the unemployment rate and that’s good for the economy. Such is the mindset of the financier class as reflected in the comments of Joe LaVorgna, chief economist at Deutsch Bank. He noted that in the USA,  23 percent of the 1.5 million who are losing their unemployment benefits will simply exit the work force, and another 850,000, at the state level, would give up on trying to find employment. LaVorgna stated that the unemployment will drop to 6.7 percent. Yippie!

Stanton here seeming channels thoughts previously explored by Zygmunt Baumann and Loïc Wacquant. Bauman wrote (2003, p. 5) that:

The production of ‘human waste’, or more correctly wasted humans (the ‘excessive’ and ‘redundant’, that is population of those who either could not or were not wished to be recognized or allowed to stay) is an inevitable outcome of modernization, and an inescapable accompaniment of modernity. It is an inescapable side-effect of order building (each order casts some parts of the extant population as ‘out of place’, ‘unfit’ or ‘undesirable’) and economic progress (that cannot proceed without degrading and devaluating the previously effective modes of ‘making a living’ and therefore cannot but deprive their practitioners of their livelihood).

Wacquant wrote (2009, p. 303)

Punishing the Poor contends that it is not the generic “risks and anxieties” of “the open, porous, mobile society of strangers that is late modernity” that have fostered retaliation against lower-class categories perceived as undeserving and deviant types seen as irrecuperable, but the specific social insecurity generated by the fragmentation of wage labor, the hardening of class divisions, the erosion of the established ethnoracial hierarchy guaranteeing an effective monopoly over collective honor to whites in the United States (and to nationals in the European Union). The sudden expansion and consensual exaltation of the penal state after the mid-1970s is not a culturally reactionary reading of “late modernity,’ but a ruling-class response aiming to redefine the perimeter and missions of Leviathan, so as to establish a new economic regime based on capital hypermobility and labor flexibility and to curb the social turmoil generated at the foot of the urban order by the public policies of market deregulation and social welfare retrenchment that are the core building blocks of neoliberalism.

The jobless poor, the masterless men and women who live in slums, basements, shelters, tent cities and, of course, on the streets of many cities, are fated to confront a bitter death as ‘freemen’ and ‘women’ or as prisoners within the vast prison apparatus that has grown these last 50 years. They are, however, artifacts produced by capital. As such, they also comprise signs that point to the barbarism of the age. The goal of our governors: To remove them from a shared everyday life and render to them faceless.

Good question

Michael Hudson asks:

This pro-austerity mythology [which animates orthodox economics and economic policy in the United States and elsewhere] aims to distract the public from asking why peacetime governments can’t simply print the money they need. Given the option of printing money instead of levying taxes, why do politicians only create new spending power for the purpose of waging war and destroying property, not to build or repair bridges, roads and other public infrastructure? Why should the government tax employees for future retirement payouts, but not Wall Street for similar user fees and financial insurance to build up a fund to pay for future bank over-lending crises? For that matter, why doesn’t the U.S. Government print the money to pay for Social Security and medical care, just as it created new debt for the $13 trillion post-2008 bank bailout?

The answer to these questions: Banks and other financial institutions want to keep as much of their income as they can. Transaction fees, regulations, oversight, taxes, etc. — these consume profits. America’s banks want to transfer these costs to others, namely, to those individuals who lack the political power to defend their standard of living. This cost transfer project amounts to a hidden and sometimes obvious tax the government levies on the 99%. When coupled to a system of risky and fraudulent financial transactions, elite looting and private debt creation, this cost transfer project amounts to little more than a predatory political economy.

The ridiculous fiscal cliff debate which now dominates America’s public life is but a crude expression of this predatory political economy.

China — a labor cost savings bonanza?

Not really, according to Yves Smith:

For some time, we’ve argued that outsourcing and offshoring were overdone. For manufactured goods, direct factory labor is typically only 10% to 15% of final product costs. Even if you get significant savings there, the offsets are increased shipping, inventory, and managerial/coordination costs (which serves as an excuse to transfer savings on factory workers to the top brass). In addition, extended supply chains also entail higher risks. I’ve had executives and senior managers in various industries tell me that there internal estimates of the savings from outsourcing weren’t compelling, but senior management went ahead on the (typically correct) assumption that investors would approve.

But even in the cases where the outsourcing cost savings were significant, the idea that American wages were way out of line with Chinese wages and the only future for American workers was grinding wages lower and lower to compete with China has been oversold. Various writers, including yours truly, pointed out that China’s wage advantage would not hold indefinitely even if it managed to keep its currency peg (which, separately, it hasn’t; the change to a currency basket has over time resulted in appreciation against the dollar).

The reason? China’s much higher inflation rate would over time reprice labor in nominal terms at home, which with a currency peg (or the current dirty float) would translate into real increases to foreign buyers. To put it more simply, double digit inflation over time would be tantamount to a currency revaluation.

Despite popular (and worse, pundit and media) perceptions otherwise, China no longer enjoys a labor cost advantage in many areas.

In fact, the United States has recently seen an increase in manufacturing investment. Why, then, do we so often hear American pundits attacking off shoring American capital when capital is now flowing back to the United States? The issue also has a political component:

Despite the fact that this trend is well under way, we’re certain to hear a steady diet of haranguing from neoliberal economists about how American workers have to suck it up and accept even lower wages. What’s driving falling real wages is poor domestic economic policies, namely, the mismanagement of the post crisis period. Japan warned the US early on that the biggest mistake it had made was not forcing its banks to recognize losses. But we ignored their lesson and are in the process of suffering what may turn out to be a lost decade. Time to blame the real perps, our bank enablers, rather than the poster bad guy, the Chinese wage slave.

Michał Kalecki expected blunders like this (.pdf) from the capitalists and their foot soldiers. We should never lose sight of the fact that capitalism is not an intrinsically rational economic system. The opposite is true.

The high job-seekers to jobs-available ratio

The ratio remains above 4:1, as the Economic Policy Institute reports. So, job seekers need to gird themselves to wait the long wait.

JOLTS for August, 2011

What does this fact mean? First, it means that Congress must extend unemployment compensation eligibility beyond the 99 week term currently in place. Second, it means that Congress and the Executive must quickly produce a jobs program that reduces this ratio. Third, it means securing Social Security, Medicare and Medicaid against the work of the political and economic reactionaries. Fourth, it means the United States would be better served if it returned to something better than “welfare as we knew it.” Fifth, it means a return to stimulus politics. And sixth, it means making a national commitment to a green-friendly reindustrialization program.